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    samer@ligadata.com
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    Background:

    Playing the stock market is the investment activity of choice for many people. This investment strategy, often glamorized in movies and TV shows, can be lucrative if done properly, and if not can be very costly.

    There are two methods to research a stock:

    A. Fundamental analysis: Should be the core of investment and research. It’s based on the fact that all publicly traded company must submit an audited annual report that contains the company’s financial statements which is divided into four statement: balance sheet, income statement, cash flow, explanatory notes.

    B. Technical Analysis: Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

    A lot of factors come into play when dealing with stock markets. Some can be quantified others can’t. The quantifiable factors that change continuously are what interest us in this use case.

    The issue here is that if we are monitoring hundreds of stocks at the same time, where the stocks are being traded constantly, and their figures are changing in real time, the question becomes how could we manage all these stock at the same time?  The solution for this scenario could be achieved using Kamanja since it’s can process a large volume of data, and would assist users in making needed decisions.

    Definitions:

    Stock: A stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.

    Stock market: The place where all the publicly traded company offer their stock for trading

    Index: an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.

    Intraday Traders: people who buy and sell stocks on daily basis. Depending on the usually small spreads of stocks. These have higher earnings but they are more vulnerable to market turmoil’s.

    Investors: people who buy stock on the mid or long run and get there earnings from the stock price rise over time. Investors usually don’t get affected by market ups and downs. And they profit less than intraday traders if they are working on mid-range.

    Following are nine factors that can be quantified, and can indicate whether to buy or sell a stock:

    1- Fair value: Is the price range that a stock should be traded at, and it is calculated by dividing the total stock volume divided by the profits of the previous year.

    2- Stock Bid Price: indicates the maximum price that a Buyer/Buyers are willing to pay for certain stock. If the price is higher than the fair value upper limit or if it’s lower than the fair value, it’s not a good buy, but if the price is greater than the lower limit with the smallest difference it becomes a good buy.

    3- Stock Asked price: indicates the minimum price that a seller is willing to accept for a socks . If the price is closer to or higher than the fair value upper limit it becomes a good sell.

    4- Spread: is the difference between the bid price and asked price for a stock. If the spread is big then trading the stock isn’t safe.

    5- Liquidity: is the degree in which a stock can be bought or sold without affecting the stock fair value, it shows how much interest investors have in the stock. The higher liquidity the stock has the better.

    6- Sector Volatility Trend: If the sector the stock belongs to is very volatile it’s best to sell your positions.

    7- Duration between Trades: Elapsed time between consecutive trades of a specific stock. If the duration is low then the stock is in demand.

    8- Volume & Value of Trades: Volume is an arguable factor in stocks. Because it depends on the point of view whether you are selling or buying. For instance if a company’s stocks are being sold in big chunks for less than fair value is risky, and the same is true if smaller amounts of that stock are being sold higher than fair value, in which case it’s better not to invest in the stock.

    9- Market sentiment towards one stock: if the demand on a stock is high and the price is within the fair value ranges then this is an indication it’s a good buy, otherwise if the price isn’t within the range then it’s risky.

    How Kamanja can help:

    As a continuous decisioning engine, one Kamanja model would evaluate the financial data provided by a financial streaming service, then send the result of evaluation to two other models, the two models are  built based on the factors listed above, one from a buyer’s perspective and another from a seller’s perspective, both would process the output from the first model, then produce alerts to the trader if the processing reaches the desired/undesired values, or if the threshold of a certain value is exceeded, so as the user can take appropriate action. In addition since Kamanja is highly configurable it can also be used in a more focused manner in which it can be set to deal with a specific list of stocks or portfolios, as defined by the trader.

     

    Note: Some factors can’t be predict or fully prepared for, such as economic shocks caused by political and economic decisions, or natural catastrophes. Also keep in mind that there are other factors that should be taken into consideration when trading any stock.

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